How can a country overcome a long period of stagnant productivity growth in its business sector and reach its growth potential? Sweden during the 1970–2010 period can serve as an example to help other countries understand how to efficiently reform a business sector. In the 1990s, Sweden implemented a reform package that ignited a successful reorganization of a business sector that had faltered for decades.
To understand the economic forces behind this process, we first survey the industrial restructuring literature and then examine the reform package using Swedish matched plant-firm-worker data. The removal of barriers to growth for new and productive firms and increased rewards for investment in human capital were crucial to the success of Sweden’s reforms. Turning to cross-country evidence, we find that an increase in the World Bank’s Doing Business indicator is associated with an increase in GDP per capita. These findings suggest that policymakers have much to learn from country case studies and from analyses based on the World Bank’s Doing Business indices.
Our study of the Swedish experience can be a valuable case study for developing countries that are attempting to promote growth by developing their business sectors and for countries that are facing economic problems in the aftermath of the financial crisis.